From any sensible risk-management perspective, the Fed ought to have been cutting interest rates for the past month. Yet it has not been. They seem to me to bet playing a game not of "risk management" but rather "let's pretend we have not wedged ourselves into a corner and should be working much harder to get out of it":
Jon Hilsenrath and Nick Timiraos: Central Banks Play a Game of Risk Management: "The world’s central banks are engaged in a major policy reversal to prevent the world economy from sinking into unexpected recession... calling off interest-rate increases.... In many cases, the central bankers are boxed in, with few policy tools available to cushion their economies.... Six months ago, Fed officials thought they would raise short-term interest rates three times in 2019 on the way toward a policy rate near 3.5% in 2020. Fed officials recently signaled they have paused for now, with short-term rates just below 2.5%. Their actions and words strongly suggest they could be done altogether.... They have unlimited space to fight accelerating inflation with higher interest rates and little-to-no space to fight slowing inflation with lower rates.... The risk may be diminished after the latest reversal by central banks, but it’s hardly gone...
#noted
